December 2011 Archives

Reminder for Employers in California - Reporting New Employees and Independent Contractors

December 16, 2011,

During the past few months, we have seen an increase in hiring from small startups and larger corporations here in San Jose and other parts of Silicon Valley. At this time of year, when companies are about to review Forms W-2 and 1099 for their workers, it is a good time for a reminder about California worker reporting requirements. In California, when a company hires a new employee, it is required to report this to the Employment Development Department (the "EDD") within 20 days of hire, regardless of whether the employee is full-time or part-time, or the amount of compensation.

If a business hires an independent contractor and pays the contractor more than $600, or enters into a contract with that individual for $600 or more, within a calendar year, the business is required to report the hiring to the EDD within 20 days of making a payment. Although the hiring of a new employee need only be reported once, the hiring of an independent contractor must be reported every year. However, if a company contracts with another business that provides a tax identification number rather than a social security number, the company hiring that business does not need to report to the EDD.

It is wise for a company to report to the EDD contractors it expects to pay in January of each year (e.g. continuing contracts) when the company prepares and reviews 1099s for the prior year. There is no penalty if a company reports a contractor and then the contractor does not actually perform services in the new year. However, the EDD could assess a penalty against a business for each failure to report a contractor within the required time frames. Source: Spidells California Taxletter Vol. 33.10.

Employer Update

December 2, 2011,

Starting in April, 2012, the EDD will calculate an ex-employee's unemployment claim differently than it does now. Currently, the EDD calculates the unemployment claim based on a lookback period of one year ending two quarters prior to the termination of employment. In April, 2012, the EDD will calculate the claim based on a lookback period of one year but ending one quarter prior to the termination of employment. This is a good reason to convert to online filing if you haven't already. For online filers, the EDD will already have this information and the change will be seamless to your business. However, if you do not file online, the EDD may not yet have your wages report for the prior quarter, or may simply not have processed it yet. In that case, you will receive a request for wage verification, and the employee will receive a request for proof of wages claimed. As the employer, you will have 10 days to complete the form and mail it back.
Source: Spidells California Taxletter Vol. 33.11, November 1, 2011, pages 130-131.